WASHINGTON (Reuters) - US regulators failed to spot how much risk insurer AIG was piling on, and by the time they understood, they had no choice but to pour in tens of billions of public dollars, officials said yesterday.

At a Senate Banking Committee hearing on what went wrong at American International Group Inc, lawmakers expressed outrage that taxpayers were kept in the dark about exactly where rescue money went as the government stepped in repeatedly to prevent its disorderly collapse.

"That we find ourselves in this situation at all is ... quite frankly, sickening," said Senator Christopher Dodd, the Democrat who chairs the committee. "The lack of transparency and accountability in this process has been rather stunning."

The fact that a "multitude of regulators" missed the warning signs at AIG highlighted the need to establish a systemic risk regulator to monitor firms that are large and complex enough to destabilise the financial system, said Scott Polakoff, acting director of the Office of Thrift Supervision.

"Where OTS fell short, as did others, was in the failure to recognise in time the extent of the liquidity risk to AIG" of certain credit default swaps held in the portfolio of the company's financial products division.

That unit, although a small part of the global insurance giant's worldwide operations, racked up such heavy losses that it threatened the entire company's survival, eventually forcing the Treasury Department and Federal Reserve to launch a series of costly bailouts.

"No one was minding the whole company and looking at how things interacted, and whether the whole company would, under some circumstances, put the financial system at risk," said Federal Reserve vice-chairman Donald Kohn.

Under a revised bailout deal announced on Monday, the amount of funds committed to help AIG increased to about $180 billion, although the insurer has not tapped it all and plans to pay back roughly $38 billion soon. The US government holds about an 80 percent stake in the insurer.

AIG sold insurance-like protection, known as credit default swaps, against declines in the value of securities — including sub-prime mortgages that began defaulting at an alarming rate when the housing market tumbled.